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How does my credit history affect my home insurance and car insurance rates?

By Insurance.com Posted : 01/01/2011


Insurance companies in most states consider your credit history as a factor in setting home and car insurance rates. If you have good credit, you're more likely to get affordable home or car insurance quotes than someone with poor credit.

While lenders consider credit history to gauge the likelihood customers will repay loans, insurance companies use the information to help predict whether customers will file costly car or home insurance claims. (Credit history is not used to determine health insurance or life insurance rates.) Insurers, who have used credit-based insurance scoring since the 1990s, say there's a relationship between credit history and claims. Theoretically, customers with poor credit are more likely to file home or car insurance claims than those with good credit.

The practice is controversial. A few states prohibit insurance companies from using credit scoring for certain types of insurance. Massachusetts, Hawaii and California don't allow credit-based scoring for car insurance, and Maryland has banned the practice for home insurance. Michigan also banned credit scoring for personal insurance lines, but the Michigan Supreme Court lifted the ban after insurance companies sued.

Maintaining good credit will help you qualify for better home and car insurance rates if you live in a state where insurance companies are allowed to use credit-based risk scoring. Get free copies of your credit reports each year from Annualcreditreport.com to make sure they're accurate. Follow instructions to correct any factual errors.

To improve your credit, pay bills on time, catch up on any late payments and keep credit card balances below 30 percent of credit limits.

For more, see "My credit affects my auto insurance rate?"


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